The Consolidated Bank and Trust Corporation (Solidbank) vs. Del Monte Motor Works, Inc., Narciso G. Morales, and Spouse

A defendant's failure to specifically deny under oath the genuineness and due execution of an actionable document attached to the complaint is a judicial admission of those facts, relieving the plaintiff of the duty to present the original and rendering the best evidence rule inapplicable to the document's undisputed terms; upon reversal of a dismissal on demurrer to evidence, judgment is rendered for the plaintiff based on the evidence presented.

Solidbank, a domestic banking and trust corporation, extended a loan to Del Monte Motor Works, Inc. and Narciso G. Morales, who was impleaded with his spouse to bind their conjugal partnership of gains. The loan was evidenced by a promissory note executed on 23 April 1982, under which the corporate and individual borrowers bound themselves jointly and severally to pay the amount through installments with interest, penalty, and attorney's fees.

On 13 June 1984, Solidbank filed before the RTC of Manila a complaint for recovery of sum of money against Del Monte Motor Works, Inc., Narciso G. Morales, and Morales's spouse, impleading the spouse to bind their conjugal partnership of gains. Solidbank alleged that on 23 April 1982 it extended a ₱1,000,000 loan to respondents, evidenced by a promissory note executed the same date. Under the note, Del Monte and Morales bound themselves jointly and severally to pay the full amount through twenty-five monthly installments of ₱40,000, with interest at 23% per annum, payable in full by 23 May 1984. Solidbank attached to the complaint a photocopy of the promissory note as Annex "A," a demand letter dated 20 January 1983 as Annex "B," and a statement of account as Annex "C."

Solidbank alleged that respondents defaulted on the monthly installments, making the full amount due and demandable; that it made oral and written demands; and that as of 09 March 1984, the indebtedness stood at ₱1,332,474.55. On 31 October 1984, Solidbank filed an ex-parte motion to declare defendants in default, which respondents opposed on the ground that they were never served with copies of the summons and complaint. On 23 November 1984, Del Monte filed a manifestation attaching its answer, denying the material allegations for lack of knowledge and pleading as special and affirmative defenses that the promissory note was void for lack of valid consideration, that no demand was sent or received, and that the complaint stated no cause of action. On 06 December 1984, Morales filed his own manifestation and answer, admitting paragraphs 1, 2, and 3 with the qualification that he had long been separated from his wife and that their property relation was complete separation of property; he denied the rest and pleaded that he never signed the promissory note in his personal or individual capacity, that the note was ineffective and void for lack of valid consideration, that banking procedures required a suretyship agreement or continuing guaranty for personal liability, and that the transaction did not inure to the conjugal partnership. On 26 December 1984, the trial court denied the default motion and admitted the answers.

At trial, Solidbank presented Liberato A. Lavarino, manager of its Collection Department, as its sole witness. Lavarino testified that respondents obtained the loan; that they failed to pay a single monthly installment; that Solidbank sent a demand letter; that Jeannette Tolentino, Del Monte's controller, wrote requesting consideration due to unfavorable business conditions and enclosed a ₱220,020 check to be discounted and applied as partial payment; and that after this partial payment, the obligation again became stagnant and another demand was unheeded. Solidbank identified the photocopy of the duplicate original of the promissory note, the 20 January 1983 demand letter, Tolentino's 10 February 1983 letter, and the 09 March 1984 statement of account. On 26 September 1985, during its formal offer of evidence, Solidbank sought admission of the duplicate original of the promissory note as Exhibit "E" because the original copy of Exhibit "A" could no longer be found. The trial court initially admitted Exhibit "E" and allowed respondents to amend their answers to conform to the new evidence.

On 30 September 1985, Del Monte moved for reconsideration of the admission of Exhibit "E," arguing that it was immaterial, irrelevant, not properly identified, and hearsay; that Lavarino had nothing to do with its preparation and execution; that markings in Exhibit "A" did not appear in Exhibit "E"; and that Exhibit "E" was not the original of Exhibit "A" on which the complaint was founded. Morales filed a similar motion, insisting that the due execution and genuineness of the promissory note had not been established as to him. On 06 December 1985, the trial court granted the motions for reconsideration and excluded Exhibit "E"; it denied Solidbank's motion for reconsideration on 20 December 1985. On 26 December 1985, respondents separately moved to dismiss on the ground that with Exhibits "A" and "E" excluded, Solidbank had no proof of indebtedness. On 08 April 1986, Solidbank moved to inhibit Judge Ricardo D. Diaz, alleging that he rushed the resolution of its motion for reconsideration and deprived it of the opportunity to prove that the original of Exhibit "A" had been delivered to respondents as early as 02 April 1983, which allegedly showed bias and partiality. The trial court denied the motion to inhibit on 06 August 1987.

On 28 December 1987, the trial court dismissed the case with costs against Solidbank. The Court of Appeals affirmed the dismissal, finding that respondents had generally and specifically denied under oath the genuineness and due execution of the promissory note and that the best evidence rule required exclusion of Exhibit "E." Solidbank's motion for reconsideration was denied on 11 May 2000, prompting its petition for review on certiorari. The Supreme Court held that respondents' answers did not constitute an effective specific denial under oath, that the best evidence rule did not apply, and that no basis existed for the judge's inhibition.

• Admission of Genuineness and Due Execution: Petitioner argued that the Court of Appeals gravely erred in finding that respondents denied the material allegations of the complaint despite indubitable facts showing that respondents admitted the genuineness and due execution of the promissory note.
• Exclusion of Exhibit "E" and Best Evidence: Petitioner maintained that the Court of Appeals erred in upholding the exclusion of Exhibit "E," the second original of the promissory note, because the original of Exhibit "A" was actually in respondents' possession, thereby warranting admission of secondary evidence under an exception to the best evidence rule.
• Judicial Inhibition: Petitioner argued that the trial judge should have inhibited himself from trying and deciding the case because of perceived manifest bias and partiality in favor of respondents, to petitioner's grave prejudice.

• Lack of Valid Consideration and No Demand: Respondents argued that the promissory note was void for lack of valid consideration or no valuable consideration, that no demand was ever sent to or received by them, and that the complaint stated no cause of action.
• No Personal Liability / No Suretyship Agreement: Morales maintained that he never signed the promissory note in his personal or individual capacity; that even if valid, he could not be bound personally and individually absent a suretyship agreement or continuing guaranty; and that the transaction did not inure to the conjugal partnership because he had long been separated from his wife under a regime of complete separation of property.
• Exclusion of Exhibit "E": Respondents contended that Exhibit "E" should not have been admitted because it was immaterial, irrelevant, not properly identified, hearsay, not the original of Exhibit "A," and had no bearing on the complaint; they also asserted that the due execution and genuineness of the promissory note were not established as to Morales.
• Dismissal After Exclusion: Respondents moved to dismiss on the ground that with the exclusion of Exhibits "A" and "E," petitioner no longer possessed any proof of respondents' alleged indebtedness.
• Lack of Service of Summons: Respondents opposed the motion to declare them in default on the ground that they were never served with copies of the summons and complaint.

• Specific Denial Under Oath: Whether respondents effectively denied under oath the genuineness and due execution of the promissory note, or whether those matters were deemed admitted under Rule 8, Section 8 of the Revised Rules of Civil Procedure.
• Best Evidence Rule and Exhibit "E": Whether the Court of Appeals erred in upholding the exclusion of Exhibit "E" and in applying the best evidence rule despite the original being in respondents' possession and the terms of the promissory note being undisputed.
• Judicial Inhibition: Whether the trial judge should have inhibited himself from the case on account of alleged bias and partiality.
• Effect of Reversal of Dismissal on Demurrer to Evidence: Whether, upon reversal of the dismissal, judgment may be rendered for petitioner based on its evidence and respondents held liable under the promissory note.

• Specific Denial Under Oath: No. Respondents failed to specifically deny under oath the genuineness and due execution of the promissory note; under Rule 8, Section 8, those matters were deemed admitted, and their defenses of lack of consideration and lack of personal capacity did not contest execution.
• Best Evidence Rule and Exhibit "E": No. The best evidence rule did not bar recovery because respondents did not dispute the note's terms and because the original was allegedly in their possession, an exception under Rule 130, Section 3; exclusion of Exhibit "E" was erroneous.
• Judicial Inhibition: No. Bare allegations of bias and prejudice are insufficient; petitioner presented no convincing proof of extrajudicial bias.
• Effect of Reversal of Dismissal on Demurrer to Evidence: Reversal required judgment for petitioner based on its evidence. Under Rule 33, Section 1, respondents waived the right to present evidence; they are liable under the promissory note for ₱1,000,000 plus 23% interest per annum, 3% penalty per annum, 10% attorney's fees with 1% monthly interest, less ₱220,020 partial payment.

• Specific Denial Under Oath: Rule 8, Section 8 of the Revised Rules of Civil Procedure provides that when an action or defense is founded upon a written instrument copied in or attached to the pleading, the genuineness and due execution of the instrument are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. The denial must declare under oath that the party did not sign the document or that it is otherwise false or fabricated. A plea of lack of consideration or fraudulent representation does not raise an issue as to genuineness or due execution; on the contrary, it admits both because it seeks to avoid the instrument on a ground not affecting either. In this case, Del Monte denied the allegations for lack of knowledge and pleaded lack of valid consideration, while Morales claimed he did not sign the note in his personal or individual capacity and invoked lack of consideration and absence of a suretyship agreement. These defenses did not specifically deny the genuineness and due execution of the promissory note. Both the trial court and the Court of Appeals therefore erred in ruling that respondents had made an effective specific denial. Respondents had, to all intents and purposes, admitted the genuineness and due execution of the note and recognized their obligation to petitioner.

• Best Evidence Rule and Exhibit "E": Rule 130, Section 3 of the Revised Rules of Civil Procedure states that when the subject of inquiry is the contents of a document, no evidence is admissible other than the original document itself, except in specified cases, including when the original is in the custody or under the control of the party against whom the evidence is offered and the latter fails to produce it after reasonable notice. The best evidence rule is justified by the risk of mistransmission of the contents of a writing. Here, respondents never disputed the terms and conditions of the promissory note; their principal defenses were lack of consideration and Morales's claim that he did not sign in his personal capacity. These contentions did not question the precise wording of the note, and the best evidence rule therefore found no application. In addition, the rule is not absolute; one exception applies when the original is in the possession of the adverse party. Petitioner asserted that the original of Exhibit "A" was in respondents' possession and would have established this had it been given the opportunity. Moreover, because respondents failed to deny specifically the execution of the promissory note, there was no need for petitioner to present the original; their judicial admission sufficiently established their liability. When a defendant fails to deny specifically and under oath the due execution and genuineness of a document copied in a complaint, the plaintiff need not prove that fact as it is considered admitted.

• Judicial Inhibition: A charge of partiality and prejudice against a judge must be supported by convincing proof that he or she is indeed biased and partial; bare allegations are not enough. Bias and prejudice are serious charges that cannot be presumed, particularly against a judge's oath to administer justice without respect to person. There must be a showing of bias and prejudice stemming from an extrajudicial source resulting in an opinion on the merits on some basis other than what the judge learned from participation in the case. Petitioner failed to proffer any evidence indicating that Judge Diaz was guilty of bias and prejudice. The Court of Appeals correctly held that there was no cogent reason for him to disqualify himself.

• Effect of Reversal of Dismissal on Demurrer to Evidence: Rule 33, Section 1 of the Revised Rules of Civil Procedure provides that after the plaintiff has completed the presentation of evidence, the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief. If the motion is granted but on appeal the order of dismissal is reversed, the defendant is deemed to have waived the right to present evidence. A demurrer to evidence abbreviates judicial proceedings, but caution must be exercised because if the dismissal is reversed on appeal, judgment is rendered in favor of the adverse party; the reviewing court cannot remand the case for further proceedings and should instead render judgment on the basis of the evidence presented by the plaintiff. Under the promissory note, respondents are obligated to petitioner in the amount of ₱1,000,000, the loan obtained on 23 April 1982, plus 23% interest per annum, a penalty charge of 3% per annum on the amount due until fully paid, and attorney's fees equivalent to 10% of the total amount due, but in no case less than ₱200.00, plus costs of suit, with both these amounts bearing 1% interest per month until paid. The ₱220,020.00 value of the postdated check given by respondents as partial payment must be deducted from the amount due.

• Specific Denial Under Oath of an Actionable Document — Under Rule 8, Section 8 of the Revised Rules of Civil Procedure, when an action or defense is founded on a written instrument copied in or attached to the pleading, the genuineness and due execution of the instrument are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. The denial must declare that the party did not sign the document or that it is false or fabricated; a plea of lack of consideration or fraud admits genuineness and due execution. The Court applied this doctrine in holding that respondents' answers did not specifically deny execution and therefore admitted the genuineness and due execution of the promissory note.

• Best Evidence Rule — Rule 130, Section 3 of the Revised Rules of Civil Procedure requires production of the original document when the subject of inquiry is its contents, except when the original has been lost or destroyed without bad faith, is in the custody or under the control of the adverse party who fails to produce it after reasonable notice, consists of numerous accounts, or is a public record. The rule rests on the need for precision and the risk of mistransmission. The Court applied the doctrine by ruling that the rule did not apply because respondents did not dispute the terms of the promissory note, and that in any event an exception applied because the original was allegedly in respondents' possession.

• Judicial Admission by Failure to Deny — When a defendant fails to deny specifically and under oath the due execution and genuineness of a document copied in a complaint, the plaintiff need not prove that fact because it is considered admitted by the defendant. The court may consider the admitted facts without the introduction of evidence. The Court applied this doctrine in holding that respondents' failure to make an effective specific denial relieved petitioner of the duty to present the original promissory note.

• Bias and Prejudice as Ground for Inhibition — A charge of partiality and prejudice against a judge must be supported by convincing proof; bare allegations are insufficient. Bias and prejudice must stem from an extrajudicial source resulting in an opinion on the merits on some basis other than what the judge learned from participation in the case. The Court applied this doctrine in denying petitioner's motion to inhibit Judge Diaz for lack of evidence.

• Demurrer to Evidence — Under Rule 33, Section 1 of the Revised Rules of Civil Procedure, after the plaintiff completes the presentation of evidence, the defendant may move for dismissal on the ground that the plaintiff has shown no right to relief. If the motion is granted and the order is reversed on appeal, the defendant waives the right to present evidence, and the reviewing court renders judgment for the adverse party based on the plaintiff's evidence; it cannot remand the case for further proceedings. The Court applied this doctrine in rendering judgment for petitioner upon reversal of the dismissal.

• "SEC. 8. How to contest such documents. – When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused." — States the controlling rule on specific denial under oath; the Court used it to deem the genuineness and due execution of the promissory note admitted.

• "In this case, both the court a quo and the Court of Appeals erred in ruling that respondents were able to specifically deny the allegations in petitioner’s complaint in the manner specifically required by the rules. In effect, respondents had, to all intents and purposes, admitted the genuineness and due execution of the subject promissory note and recognized their obligation to petitioner." — States the ratio decidendi on the specific-denial issue and explains why the lower courts' rulings were reversed.

• "Bearing in mind that the risk of mistransmission of the contents of a writing is the justification for the "best evidence rule," we declare that this rule finds no application to this case." — Defines the rationale of the best evidence rule and states the Court's holding that the rule did not apply because the note's terms were undisputed.

• "If the defendant’s motion for judgment on demurrer to evidence is granted and the order is subsequently reversed on appeal, judgment is rendered in favor of the adverse party because the movant loses his right to present evidence." — States the effect of reversing a dismissal on demurrer to evidence, supporting the final judgment in favor of petitioner.

• Permanent Savings and Loan Bank vs. Mariano Velarde, G.R. No. 140608, 23 September 2004, 439 SCRA 1 — Cited for the rule that a respondent's denials of liability and claims of lack of consideration do not constitute an effective specific denial as contemplated by law.
• Songco vs. Sellner, G.R. No. 11513, 04 December 1917, 37 Phil. 254 — Cited for the early exposition on how to deny the genuineness and due execution of an actionable document: the defendant must declare under oath that he did not sign the document or that it is otherwise false or fabricated; a plea of fraudulent representation admits genuineness and due execution.
• Asia Banking Corporation vs. Walter E. Olsen & Co., G.R. No. 24488, 28 December 1925, 48 Phil. 529 — Cited for the holding that the absence of a denial under oath of the authenticity of documents attached to the complaint deems their authenticity and due execution admitted, relieving the plaintiff from the duty of expressly presenting them as evidence.
• People of the Philippines vs. Court of Appeals, et al., G.R. No. 129120, 02 July 1999, 309 SCRA 705 — Cited for the rule that bias and prejudice are serious charges that cannot be presumed against a judge.
• Soriano vs. Angeles, G.R. No. 109920, 31 August 2000, 339 SCRA 366 — Cited for the requirement that bias and prejudice must stem from an extrajudicial source resulting in an opinion on the merits on some basis other than what the judge learned from participation in the case.
• Quebral vs. Court of Appeals, G.R. No. 101941, 25 January 1996, 252 SCRA 353 — Cited for the rule that if a motion for judgment on demurrer to evidence is granted and the order is reversed on appeal, judgment is rendered in favor of the adverse party because the movant loses the right to present evidence.
• Radiowealth Finance Company vs. Del Rosario, G.R. No. 138739, 06 July 2000, 335 SCRA 288 — Cited for the rule that the reviewing court cannot remand the case for further proceedings but should render judgment on the basis of the evidence presented by the plaintiff.

• Rule 8, Section 8, Revised Rules of Civil Procedure — Governs how to contest an actionable document. It provides that the genuineness and due execution of a written instrument copied in or attached to a pleading are deemed admitted unless the adverse party, under oath, specifically denies them and sets forth what he claims to be the facts. The Court applied this provision to hold that respondents' answers did not constitute an effective specific denial, thereby deeming the promissory note's genuineness and due execution admitted.

• Rule 130, Section 3, Revised Rules of Civil Procedure — States the best evidence rule, requiring production of the original document when the subject of inquiry is its contents, subject to exceptions including when the original is in the custody or under the control of the adverse party. The Court applied this provision by ruling that the best evidence rule did not apply because respondents did not dispute the note's terms, and that an exception applied because the original was allegedly in respondents' possession.

• Rule 33, Section 1, Revised Rules of Civil Procedure — Governs demurrer to evidence. It provides that if the defendant's motion for dismissal is granted but the order is reversed on appeal, the defendant is deemed to have waived the right to present evidence. The Court applied this provision in rendering judgment for petitioner based on the evidence it had presented.

Reynato S. Puno (Chairman), Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr., and Dante O. Tinga.